The remittances sent by Nepali abroad have set a record again. According to the monthly report released by the National Bank on Tuesday, only 1 trillion 65 billion 300 million rupees of remittances have been received in last Baisakh. On a monthly basis, the remittance inflow in Baisakh is the highest ever. Earlier, most of the remittances were 1 trillion 51 billion rupees in February and 1 trillion 44 billion rupees in October.

In this context, a conversation with Head of Research Department of Nepal Rastra Bank Ram Sharan Kharel :

Remittances set a new record last Baisakh as well. What is the reason for the increase in remittances?

The main reason for the increase in remittance inflow is the increase in the number of Nepalis going for foreign employment. The second reason is that the Nepali rupee has depreciated by 2.11 percent against the US dollar in the end of May 2018 compared to the end of June 2018. This means that the dollar has strengthened. This has also helped to increase remittances. The third reason is that the salary and allowance facilities of Nepalis working abroad have also increased. Due to this, the remittance flow has increased.

The National Bank's report showed that the rate of price increase was very low (2.77 percent) last April. Neither the prices have decreased in the market nor the domestic production has increased in a way that citizens feel. In such a situation, why is the price increase much lower than expected?

Currently, the rate of price increase has decreased due to external rather than internal reasons. In the ten months of the current financial year, the import price index has decreased by 2.6 percent. In an import-based economy, the growth rate of overall prices has decreased after the price of imports has decreased. In India, consumer price growth has been steadily declining for the past five months, falling to 3.2 percent in April. Since India has open borders and open movement, there is an impact on prices through formal and informal trade.

The price of crude oil in the international market has decreased by 20.7 percent during this ten-month period. Even in Nepal, as the price of petrol and diesel has continuously decreased, the cost of transportation, transportation and operation of diesel-based machines is decreasing. The Nepalese rupee has depreciated by 2.11 percent against the US dollar. Its effect will also be reflected in the price of imported goods. On the other hand, this year compared to last year, there has been a gradual improvement in all sectors of the economy and the increase in production and supply has helped to reduce the rate of price increase.

The overall demand in the economy is low, the price growth rate and the interest rate are continuously decreasing. Is it a sign that the economy is going into recession?

If overall demand in the economy is low, both production and price growth will decrease and unemployment will increase, it may lead to a recession. Our rate of price growth is falling due to external and not internal reasons. We should be suspicious only if the rate of price increase is continuously low due to internal reasons. What should not be forgotten is that we are directly affected by the price of the world market, but the price of the world market is not affected by our price. Therefore, if the prices of imported goods, including petroleum products, continue to decrease significantly, the rate of price growth in Nepal may decrease further in the coming days.

Domestic economy is estimated to increase by 4.6 percent this year with all types of economic activities increasing compared to the economic growth rate of 3.4 percent in the last financial year. Imports have started to increase significantly in recent months. Bank loans have increased compared to last year. The overall expenditure including capital expenditure of the government has increased. All these indicators do not indicate that the demand is low and the economy is headed for recession. The economy seems to be returning to normal.

What percentage of price increase is beneficial for our economy?

Both high price increase and contraction are considered harmful for the sustainable development of the economy. In the past, it was a practice to maintain a price increase rate of around 2 percent in developed countries and around 5 percent in developing countries. For this reason, the target price growth rate in Nepal is 5 to 6 percent in most of the years.